In Remembrance of 9-11-01 Never Forget

So far, the mood (and weather) on September 11^th has been rather solemn, which is being reflected by the stock market. All three major equity indices are hovering below the surface, namely thanks to some disappointing weekly jobless claims. Initial jobless claims for the week ended September 6th trekked higher to 315,000 from a revised 304,000; this was significantly higher than the consensus estimate of 300,000. Also, the week saw the highest increase level since June 2014. In addition, continuing claims for the week ended August 30^th rose by 9,000 to 2.487 million, resulting in the 4-week average decreasing by 15,000 to 2.499 million, which is actually a new recovery low. Both of the previous readings were revised slightly higher as well, which certainly isn’t helping sentiment. Also worth noting is the record decline in oil prices: crude oil inventory levels released yesterday showed that the oil market is well supplied, but demand has dropped thanks to the end of the summer approaching quickly and thrifty consumers. US oil production is at a 28-year high, but investors have caused global oil prices to drop 15% from the summer’s high in mid-June as fears about supply disruption from the Middle-East faded and global demand concerns increased. While cheaper gas is enough to get everyone excited, in China inflation is still higher over last year, while production prices are lower.

During the month of August, consumer inflation (or CPI) eased to a four-month low in China, while factory prices continued to be in decline for the 30^th consecutive month. Both of these components ought to add room for government intervention as a stimulus is becoming more likely to support their economy during a national property slump. The consumer price index increased 2.0% in August over last year which was shy of economists’ expectation of a 2.2% increase and a 2.3% year-over-year increase in July.

While the inflation changes remain positive over last year, the producer price index (PPI) fell 1.2% over last year, compared with projections for a 1.1% decline.

Ultimately, we view today’s data as just one more sign of weakness in Chinese domestic demand following earlier reports this week about declining imports and a slowdown in money-supply expansion. Premier Li Keqiang said yesterday that China won’t end up landing hard and that the government has confidence in achieving key development goals for 2014, with a growth target of about 7.5%. It’s clear that an economic stimulus will still be necessary in China if they hope to achieve this growth target. However, the more disappointing aspect is that the target won’t be met without interference from the government.